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FERC Issues Order To Show Cause To Power Trader, Could Seek $6 Million Penalty
July 11,2019 FERC issued an order directing Vitol Inc. (Vitol) and Federico Corteggiano (Corteggiano) (collectively, Respondents) to, "show cause why they should not be found to have violated Section 1c.2 of the Commission’s regulations and Section 222 of the Federal Power Act (FPA) by selling physical power at a loss in the California Independent System Operator’s (CAISO) market in order to eliminate congestion that they expected to cause losses on Vitol’s congestion revenue rights (CRRs)." "The Commission directs Vitol to show cause why it should not be required to disgorge unjust profits of $1,227,143, plus interest, and further directs Vitol and Corteggiano to show cause why they should not be assessed civil penalties of $6,000,000 and $800,000, respectively. Respondents may also seek a modification of those amounts consistent with Section 31(d)(4) of the FPA," FERC said In a statement, Vitol said, "Vitol Inc. regrets the FERC’s decision to issue an Order to Show Cause against it and denies all of FERC’s allegations. Vitol believes that its conduct was lawful and intends to defend itself in the appropriate forum." FERC said that a report from FERC's Enforcement Staff, "alleges that Respondents sold physical power at a loss at the Cragview node in CAISO’s day-ahead market from October 28 through November 1, 2013, in order to eliminate congestion costs that they expected would negatively affect Vitol’s CRRs." As summarized by FERC, a report from FERC's Enforcement Staff alleges that, "On Vitol’s behalf, Corteggiano purchased CRRs sourcing at Cragview in CAISO’s annual CRR auction for 2013. Cragview is the scheduling point for the Cascade intertie, and its locational marginal price (LMP) reflects one hundred percent of the congestion on the intertie. In mid-October 2013, CAISO derated the Cascade intertie to '0' in only the export direction, while still allowing imports. During the derate, an unusually high LMP appeared at Cragview due to congestion costs. The congestion costs caused Respondents’ CRRs to lose money. CAISO announced that identical derates would occur during the week of October 28 through November 1 and on additional dates later in November and in December. Respondents were able to protect against losses on their CRR positions for November and December by buying counter-flow CRRs in the CRR auctions for those months (i.e., 'flattening' the CRR position). However, because the monthly CRR auction for October had closed, it was too late for Respondents to flatten their CRR position for the last week of October. Respondents faced over $1.2 million in potential losses on their CRRs during that week’s scheduled partial derate. Respondents therefore imported physical power in the day-ahead market at an offering price of $1/MWh, which prevented a recurrence of the congestion costs that Respondents had observed during the October 18-19 derate. Respondents undertook the import transactions in disregard of market fundamentals and were indifferent to whether they made a profit on them. Respondents lost money on the imports, but avoided a far larger loss on their CRRs." "The Enforcement Staff Report alleges that Vitol avoided a loss of $1,227,143 on its CRRs through its manipulative trading, and staff recommends that Vitol pay this amount, plus interest, in disgorgement," FERC said See more details on the alleged behavior in FERC's order Docket No. IN14-4
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